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The Copyright Royalty Board yesterday announced on its website the royalty rates that webcasters will pay to SoundExchange for the use of sound recordings in their digital transmissions over the Internet and to mobile devices in the period from 2016-2020. For commercial webcasters, the CRB set $.0017 as the per performance (i.e. the rate paid per song, per listener) rate for nonsubscription streaming, and $.0022 per performance for subscription streaming. For most webcasters, including broadcasters, this represents a drop of approximately 1/3 in the rates paid - perhaps the first time in any CRB proceeding that rates decreased as the result of a CRB decision. The rates and terms adopted by the CRB for this statutory license can be found here.

For Pureplay webcasters, like Pandora, the nonsubscription rates represent a modest increase from the $.0014 rate that they were paying in 2015 pursuant to the Pureplay Agreement negotiated under the Webcaster Settlement Act almost 8 years ago (see our article here). For the subscription services offered by these companies, the rate actually decreases from the $.0025 rate that they had been paying. There is also no provision for a percentage of revenue. The Pureplay Agreement had required that services pay the higher of the per performance rate or 25% of the webcaster’s gross revenues from all sources, limiting their growth outside of webcasting, and preventing companies with substantial other business interests from entering the Internet radio market and relying on the Pureplay rates. That percentage of revenue overhang has been eliminated. For a summary of the rates that had been in effect for all of the different classes of webcasters, see our article here.

The decision also set the rates for noncommercial webcasters - essentially leaving those rates at $500 per year per channel doing no more than 159,140 of aggregate tuning hours of streaming. At listening hours above those rates, a large noncommercial webcaster would pay at the $.0017 per performance rates.

All rates are subject to periodic adjustment based on increases in the cost of living indexes. The rates are far lower than those requested by SoundExchange, which had proposed rates starting at $.0025 per performance and increasing yearly to $.0029 by 2020 (see our summary of the proposals of the parties, here). SoundExchange had also asked for a 55% of revenue royalty, with the webcaster paying the higher of the per performance royalty or the percentage of revenue royalty. That proposal also appears to have been rejected by the Judges.

Most of the royalty terms appear to be pretty much unchanged from prior years - with payments remaining due 45 days after the end of each month, and minimum fees being due by the end of January. SoundExchange audits must still be done by a CPA, a requirement that SoundExchange had sought to eliminate.

What may have surprised many observers is that these rates do not make any special allowances for small webcasters. Under prior webcaster settlement agreements, small commercial webcasters were able to pay based on a percentage of their revenue, and there were special provisions for small broadcasters to avoid some of the regulatory burden. There were no small commercial webcasters who litigated this proceeding - and thus there was no evidence from which the Judges could arrive at a small commercial webcaster rate. And, while there had been advocacy for a small broadcaster rate, that appears to have been rejected by the Board. Even changes in the noncommercial rates for smaller webcasters were rejected.

These observations are based on the CRB summary and the rules released yesterday. The Board’s reasoning will become clearer once the full decision is released. But for many in the webcasting industry, these rates appear to be generally good news and certainly not the calamity that could have occurred had the SoundExchange proposal been adopted. See, for instance, Pandora’s statement here. SoundExchange, however, appears to be reviewing its options for possible next steps (see their statement here). For what happens next, including possible appeals, you can look at our article from earlier this week, here.

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